Most OTC derivatives are not cleared (although OTC clearing is becoming more common, espe- cially in energy derivatives). As a result, if Mr. S and Ms. B do an OTC deal, they are each at risk to the other’s non-performance for the life of the transaction (i.e., until it matures or they agree to terminate it by mutual consent). Such deals are said to be “bilateral” because the two original trading partners remain contractually committed throughout the life of the trade, in contrast to a cleared transaction.

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is means too that bespoke deals are not fun-

gible. Whereas because of clearing I can exit an exchange traded futures position by nding any- one willing to take the other side of the trade, I

can exit a bilateral deal only by trading with my original counterparty, or by nding a third party whom my original counterparty is willing to ac- cept in my place.

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e prices of most OTC deals are not transpar-

ently observable, although some transactions prices and some information on tradable prices are disseminated electronically and through bro- kerages. Moreover, there has been no centralized collection of trading and position data in the OTC markets. e paucity of price and position transparency (as compared to exchanges) has led some to apply the pejorative label “dark markets” to OTC dealings.